The preparation of closing entries:
A) is an optional step in the accounting cycle.
B) results in zero balances in all accounts at the end of the period so that they are ready for the following period's transactions.
C) is necessary before financial statements can be prepared.
D) results in transferring the balances in all temporary accounts to Retained Earnings.

Question

Quizplus · Accepted Answer

The preparation of closing entries is necessary before financial statements can be prepared. Closing entries transfer the balances in all temporary accounts (revenue, expense, and dividend accounts) to Retained Earnings, resulting in zero balances in these accounts at the end of the period. This prepares the accounts for the following period's transactions.

The Preparation of Closing Entries